You can lose money buying an equity indexed annuity, especially if you need to cancel your annuity early. Even with a guarantee, you can still lose money if your guarantee is based on an amount that’s less than the full amount of your purchase payments. In many cases, it will take several years for an equity-index annuity’s minimum guarantee to “break even.”

Equity indexed annuities are complex products that may contain several features that can affect your return. You should fully understand how an equity-indexed annuity calculates its index-linked interest rate before you buy. Some common features used to compute an equity-indexed annuity’s interest rate include:

	Participation Rates. The participation rate determines how much of the index’s increase will be used to compute the index-linked interest rate. For example, if the participation rate is 80% and the index increases 9%, the return credited to your annuity would be 7.2% (9% x 80% = 7.2%).
	Interest Rate Caps. Some equity-indexed annuities set a maximum rate of interest that the equity-indexed annuity can earn. If a contract has an upper limit, or cap, of 7% and the index linked to the annuity gained 7.2%, only 7% would be credited to the annuity.
	Margin/Spread/Administrative Fee. The index-linked interest for some annuities is determined by subtracting a percentage from any gain in the index. This fee is sometimes called the “margin,” “spread,” or “administrative fee.” In the case of an annuity with a “spread” of 3%, if the index gained 9%, the return credited to the annuity would be 6% (9% - 3% = 6%).

Another feature that can have a dramatic impact on an equity-indexed annuity’s return is its indexing method (or how the amount of change in the relevant index is determined). Some common indexing methods include:

One of the best way of determining which Equity Indexed Annuity is right for you is to get the sound advice of a knowledgable advisor. Click here if you are ready to find out which equity indexed annuity is best for you.